The energy sector is poised for growth, driven by economic recovery and monetary easing in key markets like China, which are fueling demand. Additionally, technological advancements and increased investments in oil extraction are expanding supply in regions such as the Americas, making small-cap energy stocks a wise investment choice.

Therefore, it could be wise to invest in strong small-cap energy stocks like Sabine Royalty Trust (SBR), Permian Basin Royalty Trust (PBT), and Ranger Energy Services, Inc. (RNGR), which offer significant growth potential this year.

Small-cap energy companies, typically in their growth phase, offer significant upside as they expand operations or enter new markets, fueled by rising industrial and consumer energy demand, especially in developing Asian economies this year. While small-cap stocks can be volatile, they have historically outperformed during economic recoveries and bull markets, making them appealing to growth-focused investors.

Meanwhile, oil demand is set to rise from 840 kb/d in 2024 to 1.10 mb/d in 2025, reaching 103.90 mb/d. Alongside, colder temperatures will drive higher natural gas demand during the winter season. U.S. Henry Hub natural gas prices are expected to average $3.00/MMBtu in 2025, up from $2.20/MMBtu in 2024. While prices are rising, they remain moderate, supporting stable industry performance.

Given these factors, let’s now examine the fundamentals of the three featured small-cap energy stocks.

Sabine Royalty Trust (SBR)

Valued at $959.46 million by market cap, SBR holds royalty and mineral interests in various producing oil and gas properties. Its royalty and mineral interests include landowner’s royalties, overriding royalties, minerals, production payments, and other non-participatory interests in producing undeveloped oil and gas properties in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas.

SBR’s EPS grew at a CAGR of 32.1% over the past three years. Similarly, its EBIT grew at a CAGR of 32% during the same period.

SBR’s trailing-12-month gross profit margin of 100% is 118.1% higher than the industry average of 45.85%. Likewise, its trailing-12-month EBIT margin and net income margin of 97.22% and 96.58% are 397.3% and 744.1% higher than the industry averages of 19.55% and 11.44%, respectively.

For the fiscal third quarter that ended September 30, 2024, SBR’s royalty income increased 37.7% year-over-year to $19.78 million, while its distributable income grew 38.9% year-over-year to $19.07 million. Additionally, its distributable income per unit rose 39.4% from the year-ago value to $1.31.

SBR’s stock has gained 4.8% over the past three months, closing the last trading session at $65.81.

SBR’s POWR Ratings reflect its bright prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

SBR has a B grade for Growth and Quality. Within the Energy – Oil & Gas industry, it is ranked #10 out of 75 stocks. Click here for the additional POWR Ratings of SBR (Value, Momentum, Stability, and Sentiment).

Permian Basin Royalty Trust (PBT)

Valued at $540.20 million by market cap, PBT is an express trust that holds royalty interests in various oil and gas properties. The company owns a 75% net overriding royalty interest in the Waddell Ranch properties, including Dune, Sand Hills (Judkins), Sand Hills (McKnight), Sand Hills (Tubb), University-Waddell (Devonian), and Waddell fields in Crane County, Texas.

PBT’s revenue grew at a CAGR of 53.7% over the past three years. Also, its net income grew at a CAGR of 57.2% over the past three years.

In terms of the trailing-12-month Return on Common Equity, PBT’s 21,015% is considerably higher than the 12.50% industry average. Likewise, its 925.62% trailing-12-month Return on Total Assets is significantly higher than the 5.09% industry average. In addition, its 12.13x trailing-12-month asset turnover ratio is substantially higher than the 0.48x industry average.

PBT’s royalty income for the fiscal third quarter that ended September 30, 2024, increased 152.2% year-over-year to $8.37 million. Its distributable income grew 151.5% over the prior-year quarter to $8.05 million. For the same period, its distributable income per unit rose 142.9% from the year-ago value to $0.17.

Over the past six months, the stock has gained 3.9% to close the last trading session at $11.59.

PBT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It is ranked #12 in the Energy – Oil & Gas industry. It has a B grade for Growth and Quality. Click here to see PBT’s Value, Momentum, Stability, and Sentiment ratings.

Ranger Energy Services, Inc. (RNGR)

Valued at $365.49 million by market cap, RNGR provides onshore high-specification well service rigs, wireline services, and complementary services to exploration and production companies. It operates through three segments: High-Specification Rigs, Wireline Services, and Processing Solutions and Ancillary Services.

RNGR’s tang book value grew at a CAGR of 35% over the past three years. Also, its EBITDA grew at a CAGR of 284.9% over the past five years.

In terms of the trailing-12-month levered FCF margin, RNGR’s 7.91% is 13.9% higher than the 6.95% industry average. Similarly, its 1.51x trailing-12-month asset turnover ratio is 217.8% higher than the 0.48x industry average.

During the third quarter ended September 30, 2024, RNGR’s total revenue was $153 million. Its net income was $8.70 million, with net income per share at $0.39, up marginally year-over-year. RNGR’s operating income rose 10.3% over the prior-year quarter to $12.90 million. Additionally, its adjusted EBITDA stood at $21 million.

Street expects RNGR’s EPS for the quarter ended December 31, 2024, to rise 34.6% year-over-year to $0.18. Its revenue for fiscal 2025 is expected to grow 12% year-over-year to $625.40 million. Over the past six months, RNGR’s stock has gained 59.5%, closing the last trading session at $16.43.

RNGR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It has an A grade for Sentiment and a B for Growth and Value. Within the Energy – Services industry, it is ranked #3 out of 53 stocks. Beyond what we stated above, we also have given RNGR grades for Momentum, Stability, and Quality. Get all the RNGR ratings here.

What To Do Next?

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SBR shares were trading at $66.18 per share on Monday afternoon, up $0.37 (+0.56%). Year-to-date, SBR has gained 2.11%, versus a 1.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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